Cell Tower Leases: “This balloon is due for a correction and here is why”

01

September 1st, 2015, early morning – I’m sitting here watching the DOW. It’s been down since the beginning and appears to be headed lower, much lower. I was a stock broker in 1987 and watched in awe, not believing that this could actually happen. It kept dropping and I learned that ‘down is faster’, much faster. I’ve since coined this phenomena as economic gravity. It always works.

Rising Interest Rates = The Unknown

Then

Markets DO NOT like the unknown, especially with serious signs of a potential collapse. I remember these ominous signs like it was yesterday. Smith Barney, where I was employed as a rookie, had a very well known market ‘chartest’ (charting investors emotional reactions to market conditions ad finding graphical patterns that have shown historic potential up and down side moves). He may have warned us of this potential. I didn’t have the understanding of what he could have been telling us. Besides, the few clients I had wouldn’t have been impressed as the markets were and had been rising for sometime. Then WHAM, on the 3rd Friday of the month, options expiration time, the market started the biggest percentage decline in all of history.

What does this have to do with the bond markets and fixed rate securities like cell tower/rooftop leases? In the first week of April 1987 U.S. T-Bonds began to sell-off. Toward the end of that year T-Bonds had plummeted 20% from January 1, 1987.

Now

Bloomberg 01/01/15

“Yet to most economists, there’s no need for the Fed to wait as jobs and spending continue to pick up. Three-quarters of those surveyed by Bloomberg in August say the Fed will lift the upper bound of its target rate to 0.5 percent at its Sept. 16-17 meeting. The median forecast sees four more increases over the next year.”

Fixed Rate Securities Move Inversely to Yields

When interest rates rise, the fixed rate investment goes down. It costs less to buy a bond that yields, say 6%, when the market is at 7 or 8%. By buying it for less, the yield for that bond has risen, following the new water level of like investments.

It is the same for cell tower leases. when interest rates rise the value of tower leases will go down relative to where they are.